Do You Know What Corporate America Is Planning For?

Every news story about the coming “fiscal cliff” talks about what the “real” problem is. The consensus being, that American companies aren’t making decisions on employment or investment because they don’t know what is going to happen… They are putting off decisions until they see what Congress will do.

The truth isn’t quite that straight forward…I caught this story yesterday on the Nighly Business Report (yes PBS)…

I then found this story on the Miami Herald…

Niche technology company Heico Corp. said Tuesday that its board of directors declared a special dividend in addition to the regular $.06 per share semi-annual dividend.

The cash payments — which total $1.20 per share — will be made Dec. 21.

Heico, which has headquarters in Miami and Hollywood, said the dividends were declared because of expected tax increases in 2013. The regular six-cent per share dividend would have normally been paid in January.

HEICO Corporation is a successful and growing technology-driven aerospace, industrial, defense and electronics company. For more than 50 years, HEICO has thrived by providing customers with innovative and cost-saving products and services.

HEICO’s products are found on large commercial aircraft, regional, business and military aircraft, as well as on a large variety of industrial turbines, targeting systems, missiles and electro-optical devices.

Now what I found interesting about this story is Heico normally pays a dividend of $.06 per share. But because taxes on dividends will in all probability be going up next year because of Congressional negotiations, they decided to kick in $1.14 per share. That’s essentially 19 years of dividends in a single year.

According to the story on NBR, the total payout of dividends will cost the company $60,000,000. That is almost the entire net income for the first nine months of 2012. The real kicker though, is that when all is said and done they will have to borrow the money to pay the next 20 years of dividends early…

But it was the first line of the video that said it all…”The roster of companies announcing special one-time paydays for their shareholders continued growing today.” So, American companies are making plans, and acting on those plans. They just aren’t the plans you or I would expect given the news stories we are hearing and reading…It’s still all about the taxes.

Let the countdown begin.

Enzon will pay a special dividend of $2 a share, a payout that will roughly cost the drug developer an additional $88.8 million, based on FactSet’s count of its recent shares outstanding…

Mastech plans to give a one-time payout of $2 a share, which is expected to cost the information-technology staffing company around $6.4 million…

In addition, National Beverage Corp. (FIZZ) said it has finalized a special dividend of $2.55, with an estimated cost to the soft-drink company of $118.2 million…

Christian broadcaster Salem Communications Corp. declared an early cash dividend for the fourth quarter, joining a growing number of companies speeding the payments to avoid possible tax obligations for investors….

Other companies that have declared early dividends include Burbank’s Walt Disney Co.; Wal-Mart Stores Inc. of Bentonville, Ark. and Costco Wholesale Corp. of Issaquah, Wash.

We’ve seen a record 100+ companies join the new special dividend trend, including The Walt Disney Company (DIS), Guess, Inc. (GES), Las Vegas Sands (LVS), and Wynn Resorts (WYNN). These companies’ largest shareholders, often founders or the families of founders, will benefit the most from these payouts (since they own the most shares).

Most recently, Costco Wholesale Corporation (COST) has been stirring up its share of controversy. The company reported it will be paying a $7 per share special dividend on on December 18, to shareholders of record on December 10. However, the company also reported that they will be borrowing over $3 billion to pay for this special dividend. That’s the full amount the company intends to pay out. It will have to pay back that money to lenders, plus interest.

In theory, a dividend, especially a special dividend is extra cash a company has in which they decide to distribute back to their investors. The idea of borrowing money in order to pay a dividend, which the company has no obligation to pay, does not make sense…